By Mike Bodeen · 22 January 2018
How does it Affect Us?
As we’ve blogged for years, “all real estate is local!” We’ve usually written this as it relates to the value of residential real estate, which is where our expertise is. The national appreciation rate (for example, as measured by Moody’s Case-Schiller Index) is a national macro look at home values. State home values, county home values, and zip code home values, are likewise a macro view. When you get down to a neighborhood, okay, now we’re getting closer, but even two homes located on the same street with the exact same floor plan, may have vastly different values due to upgrades, condition, and views.
How the recently passed Tax Reform Act will affect our little real estate world here in the Phoenix/Scottsdale metro communities is currently being debated. Various sources have pontificated good and evil may result, but I contend, not here, not now.
Evan Liddiard, director of tax policy at the National Association of Realtors, said to Inman Real Estate News, “For more than 100 years, the IRS has incentivized homeownership through the mortgage interest and property tax reduction. This will change in a major way because of this bill.”
That is not an untrue statement. But one must ask if that’s as true in Phoenix as it is in say, New Jersey, California, or New York?
Ladies and gentlemen, we have an answer to that – no!
No, because, the citizenry in those states WILL PAY MORE than we will. They will pay more because of the horrifically high property taxes in those states. The ability to deduct property tax deductions against income is not eliminated – it’s capped – at $10,000.00.
“…the citizenry in those states WILL PAY MORE than we will…they will pay more because of the horrifically high property taxes in those states.”
A brief look at values of currently listed homes in Paradise Valley shows that a $1,000,000 home will pay $4300 for property taxes. Most homes currently listed in Paradise Valley for up to $2,250,000 will pay less than $10,000 per year in property taxes. In the past six months 44,205 homes sold in our Phoenix Metro MLS. Of those, 148 sold for over 2.25 Mil. This equates to one-third of one percent of all the sales.
Okay Mike, what about the mortgage interest deduction – that was reduced? Yes, it was. From $1,000,000 of mortgage interest to $750,000. So how many Phoenix area homeowners does that affect? Glad you asked. Keep in mind that the mortgage interest limitation is mortgage, not price, so if you figured a 25% cash down payment for a jumbo loan, this would equate to a $1,000,000 home. There were 583 homes in Phoenix Metro MLS that sold for $1,000,000 or more. Out of 44,205, that’s 1.3% of all home sales. Keep in mind too, that as many as half of those sales had no mortgage, so probably less than 1% of all Phoenician buyers are affected by the Tax Act mortgage interest limitation.
Oh, and did I mention that these changes only affect purchases that happen after 12/15/2017? All others are grandfathered in.
– Mike